Commissioner of Income Tax vs Prima Paper and Engineering Industry

M.S. Sanklecha, J.—In this appeal by the Revenue for the assessment year 2001-02, the following questions of law have been raised for our consideration: (a) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reopening of assessment as invalid and bad in law when the same was based on the Revenue audit objection?

(b) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reopening of assessment as invalid and bad in law by observing that the reopening in the present case is change of opinion when in fact no opinion was formed at any stage of assessment in respect of the admissibility of the claim of the assessee u/s 80-IA in view of the fact that there is loss from the windmill project?

(c) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reopening of assessment as invalid and bad in law when the Supreme Court in the case of Commissioner of Income Tax Vs. P.V.S. Beedies Pvt. Ltd., has held the reopening of assessment on the basis of a factual error pointed out by the internal audit party as valid?

The respondent-assessee was originally assessed u/s 143(3) of the income tax Act, 1961 ("the Act") for the assessment year 2001-02 by order dated April 29, 2003, to an income of Rs. 63.84 lakhs. This was after, inter alia, allowing a deduction u/s 80-IA of the said Act of Rs. 26.73 lakhs in computing the income on account of its windmill project.

Thereafter, by notice dated July 25, 2005, u/s 147/148 of the said Act, the Assessing Officer sought to reopen the assessment for the assessment year 2001-02 on the following grounds:

On verification of the record, it is observed that the ''a'' is engaged in the business of plastic molded products. The ''a'' has a windmill project and income derived from this unit from sale of electricity of Rs. 28,14,000 was credited to the profit and loss account and claimed at 100 percent depreciation u/s 80-IA. It is also noticed that the expenses relating to power generation were not allocated against the income of Rs. 26,73,300 the ''a'' has also not mentioned any separate books of account for this suit. On allocation of proportionate expenses this will be loss from the windmill project no deduction u/s 80-IA is admissible to the ''a'' as claimed. In view of the decision of the Bombay High Court in the case of Indian Rayon Corporation Ltd. Vs. Commissioner of Income Tax, the same is, therefore, required to be withdrawn as wrongly allowed.

The respondent-assessee contested the reopening of the assessment. However, the Assessing Officer did not accept the same and by an order dated December 30, 2005, reduced the respondent''s claim for deduction u/s 80-IA of the Act and, consequently, re-determined the total income at Rs. 91.54 lakhs. In appeal the Commissioner of income tax (Appeals) upheld the order of the Assessing Officer. On further appeal by the respondent-assessee, the Tribunal by the impugned order dated October 8, 2010, held that the reopening of the assessment for the assessment year 2001-02 was bad in law. This was on account of the fact that the reopening of assessment was sought on a mere change of opinion. The impugned order holds that the Assessing Officer had during the course of the original assessment proceeding leading to the order dated April 29, 2003, had specifically enquired into the claim of the respondent-assessee for deduction on account of the windmill project made u/s 80-IA(4) of the said Act. 4. The Revenue''s grievance with regard to the impugned order of the Tribunal is that there is no change of opinion as the original assessment order dated April 29, 2003, of the Assessing Officer does not discuss the claim for deduction u/s 80-IA of the Act. In these circumstances, it is the case of the Revenue that as the reopening of assessment is within a period of four years from the end of the relevant assessment year, the reopening of assessment for the assessment year 2001-02 was justified. Counsel for the Revenue has also made the submissions with regard to the reopening of assessment not being bad in law merely on account of the fact that the information about the escapement of income for the assessment year 2001-02 was received from the Revenue audit. In fact, questions (a) and (c) are framed on the above basis. However, as the impugned order has not granted relief to the respondent-assessee on the basis that the reassessment was done on the basis of the audit objection, we see no reason to deal with the above submission.

It is well settled that the power to reopen an assessment is not a power of review and a mere change of opinion would not justify the reopening of an assessment. This would apply even when the assessment sought to be reopened is within the four years from the end of the assessment year. We find that the Revenue in its appeal in ground 6.1 states as under:

It is true that the issue of the claim of deduction u/s 80-IA(4)(iv)(a) of the income tax Act was already discussed and deliberated by the Assessing officer during the regular scrutiny proceedings u/s 143(3) of the income tax Act, the first round of the assessment proceedings, however, there is no prevention in the income tax Act of reopening of the assessment on the issues discussed earlier in the scrutiny proceedings u/s 143(3) of the income tax Act.

From the above ground itself, it is clear that the Revenue does not dispute the fact that the issue with regard to which the reopening is sought to be done was the subject matter of discussion and deliberation before the Assessing Officer during the original proceedings leading to the order dated April 29, 2003. In these circumstances, it is an undisputed position that the Assessing Officer did have occasion to apply his mind to the deduction claimed by the respondent-assessee before allowing the same. The objection of the Revenue that there was no opinion formed during the original assessment proceeding as the order dated April 29, 2003, did not deal with the same is unsustainable. The mere fact that the assessment. order does not discuss the issue of deduction u/s 80-IA(4) of the Act would not lead to the conclusion that the Assessing Officer had made no opinion with regard to the issue. In fact, the Revenue does not dispute as noticed from the ground extracted above that the issue was considered by the Assessing Officer during the assessment proceedings. The Tribunal has reached a finding of fact that the question with regard to the claim for deduction u/s 80-IA of the Act was raised by the Assessing Officer and responded to by the respondent-assessee. This position is also not disputed by the Revenue. Merely because the issue is not discussed in the assessment order would not lead to a conclusion that no opinion was formed as to the subject of the query as held by this court in the matter of Idea Cellular Ltd. Vs. The Deputy Commissioner of Income Tax, Range 3(2), The Commissioner of Income Tax and The Union of India (UOI),

So far as questions (a) and (c) are concerned, they do not arise out of the impugned order of the Tribunal. Therefore, we see no reason to admit questions (a) and (c).

So far as question (b) is concerned, the Tribunal in the impugned order has reached a finding of fact that the issue of deduction u/s 80-IA of the Act was raised by the Assessing Officer during the assessment proceedings and responded to by the respondent-assessee. This finding of fact is accepted by the Revenue as is evident from the ground extracted above. Therefore, as the decision is based on the finding of fact we see no reason to entertain question (b). Accordingly, the appeal is dismissed with no order as to costs.